Reporting Expenses and Benefits Part 2

Payrolling Benefits

Previously we reminded you of the changes to the reporting of expenses and benefits from the 2022/23 tax year, and the calculations of the Class 1A national insurance via the P11D (B), both following recent HMRC guidance that requires the submissions to be reported electronically for this tax year onwards.

Employers were also reminded that where they have an informal agreement in place to allow the voluntary payrolling of benefits, HMRC is encouraging them to register by 5 April 2023 to enable these processes to be formalised, thus removing the need to continue recording ‘Payrolled benefits’ on the P11D form, and more importantly removing the need to complete a P11D form altogether.

If you are considering Payrolling benefits here are a few points to consider.

The deadline for registering for payrolling benefits as explained is the 5 April. However, the earlier the better. Employers should aim to register around December, or as soon as possible thereafter. This is because HMRC needs to amend the employees’ tax codes before the start of the new tax year to the remove the benefits that are to be included in the payroll.

Employers can only register for payrolling for complete tax years to payroll expenses and benefits for the following tax year. In other words, an employer can choose in the current year (2022/23) to register for the year ahead (2023/24), using the Payrolling Benefits in kind (PBIK) service.

Not all benefits need to be payrolled, nor do all employees in receipt of benefits need to be included as employers can be selective in this process but need to identify relevant employees and the type of expense or benefit to be included.

Once an employer has registered, HMRC will remove the chosen expense or benefit from the employee’s tax coding and amended tax code notices will be issued to the employer and to employees included in the payrolling process.

This arrangement will remain in place, and those expenses and benefits included will be payrolled automatically in future years unless the employer decides they no longer wish to continue, at which point they can choose to deregister. This must be done before the start of the chosen tax year and factors that can attribute to the cancellation of the scheme can be where:

• There is insufficient income to cover the tax on the benefit, or
• The Employer stops providing or paying the benefit to the employee.

The majority of expenses and benefits can be payrolled with the exception of:

•  Living accommodation, and
• beneficial/interest free and low interest loans

If payrolling company cars and fuel benefits, there is no need to complete the quarterly P46 (car) returns as these statements are incorporated in the Full Payment Submission.

When administering the cash equivalent benefit through the payroll employers should set up a pay component that is taxable, non-NI-able and non-payable.

PAYE regulations prevent employers from deducting more than 50% in tax from an employee’s pay. This is called the overriding limit and ensures that employees aren’t left with too little pay to cover their living costs.

If the value of the benefit changes during the tax year, the employer must adjust the cash equivalent amount to ensure the charges are cleared by the end of the tax year.

Employers should notify employees in writing that their benefits will be payrolled and what it means for them. This should be followed by a more detailed breakdown explaining:

• details of the benefits that have been payrolled, the value, the cash equivalent and which ones have been subject to PAYE tax
• the amount you have payrolled for optional remuneration (OpRA)
• details of benefits you have not payrolled.

Notification must be sent by 1 June after the end of each tax year.

The P11D (B) Class 1A payments must be made by the 19/22nd of July following the tax year in which the benefits were provided.